Digital healthcare in Southeast Asia offers healthy returns

Rapid digitalization in the health industry is set to drive M&A across the region

Digitalization is reshaping the global healthcare industry as demand for personalized, more accessible care fuels innovative market solutions.

Developments during the pandemic showed that new ways of accessing and managing care are possible, pushing digital healthcare to the top of the sector’s agenda. This fresh prioritization prompted a surge of investment and innovation, with the value of the global digital healthcare market reaching around US$240 billion in 2023, with compound annual growth of 22 percent projected between 2024 and 2030.

With its interconnected healthcare space and wealth of healthtech startup talent, Southeast Asia is set to become a key growth market for digital health. There is a sizable supply-demand gap for healthcare in the region, with some significantly underserved populations that underscore the need for remote healthcare solutions.

The region also boasts a large and growing tech-savvy middle class that increasingly demands more personalized healthcare solutions. These market dynamics are driving substantial growth in the region’s digital health market, which is on track to reach just under US$6.1 billion in revenue in 2024.

Online healthcare attracts top funding

Local startups have recently attracted some sizeable investments, despite the broader downturn in funding elsewhere in the world. The largest fundraise of 2023, for instance, saw Indonesian healthtech firm Halodoc raise US$100 million from a group of investors led by local conglomerate Astra Digital, increasing the startup’s total funds raised to US$258 million. Halodoc is Indonesia’s largest healthtech platform, providing more than 20 million monthly active users access to 3,300 hospitals, 4,900 pharmacies and 20,000 medical practitioners.

Singapore, a known hub for innovation, has attracted the majority of regional attention from venture capital investors. Local startups attracted four key investments over the past year, the highest number across the region. The largest was announced in December 2023, with healthtech startup Doctor Anywhere securing US$40.8 million in fresh funding. Participating investors included regional VC firm Square Peg and Danish life sciences investor Novo Holdings.

The healthcare platform, which provides services including round-the-clock access to doctors and third-party health insurance purchasing, is looking to expand into specialist care on the back of growing demand across the region, particularly in relation to early detection of chronic illnesses.

Race for AI fuels investor activity

Investment in data analytics and software driven by artificial intelligence will take center stage as the development of digital healthcare gathers pace across Southeast Asia. A US$45 million fundraise by data analytics startup Holmusk, which is jointly headquartered in Singapore and New York, is one example of investor interest in this space.

Holmusk delivers real-world clinical data to the behavioral health industry through its AI-enabled platform NeuroBlu Database, which draws on the non-identified electric health record data of over one million patients. Veradigm, a Chicago-based healthcare data company, was the lead investor in Holmusk’s US$45 million fundraise. The two companies deepened their strategic collaboration in Q4 2023, announcing that Veradigm will make a further investment in Holmusk and augment the latter’s NeuroBlu Database with its own clinical data.

Behavioral and mental health has come into sharp focus since the pandemic, which prompted a surge in demand for mental health-related care. According to the World Health Organization (WHO), the first year of the pandemic precipitated a 25 percent increase in the prevalence of anxiety and depression globally.

The findings have been described as a “wake-up call” by Dr Tedros Adhanom Ghebreyesus, WHO director-general, for countries to support their populations’ mental health. Demand for supportive data will be crucial in enabling the healthcare industry to tackle these issues.

Regulators play catch-up

The recent investments are a positive sign of further sizeable deals to come. Interest from global private equity players will be the next logical step as regional startups gain scale. This trend is already being played out on the global stage—seen, for example, in KKR’s US$11 billion acquisition of a stake in US-based healthtech firm Cotiviti Holdings, provider of payment analytics to health insurers and other healthcare providers. The investment, announced in February 2024, will be used to accelerate innovation and expand product offerings.

Strategic deals will be sure to follow once the market becomes globally established, but various obstacles to increased dealmaking remain. They include widely varying regulations across jurisdictions that have not kept pace with the industry’s rapid growth and fragmented nature. Another related, potentially thorny topic is the security and ownership of patient data, where variance in regulation could frustrate cross-border dealmaking and put an even greater onus on effective due diligence.

Seizing the opportunity

Investment in digitalization will be crucial in expanding access to healthcare in Southeast Asia while also improving the quality and affordability of care. Market drivers such as demand for remote healthcare, an increased focus on mental health, and the rapid development of AI applications seem poised to generate continued growth.

While VC investors are currently the most active in the region’s digital healthcare market, local and international PE and strategic players will become more prominent as the industry matures there.

Dealmakers interested in Southeast Asia’s considerable potential should be cognizant of evolving regulation and how it impacts transactions within and between specific geographies. Rules governing AI and data-sharing, in particular, pose especially sensitive challenges in the already-exacting healthcare sector.

If these challenges can be overcome, the Southeast Asian digital healthcare market presents an exciting opportunity for dealmakers looking to expand their offering in this dynamic field.

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